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Published: Sunday, 1/16/2005

Hothouse for scammers?

BY HOMER BRICKEY
BLADE SENIOR BUSINESS WRITER

Toledoans have many reasons to believe this area is a breeding ground for major frauds.

In the last five years alone, Toledo has received a black eye from such well-publicized scams as J. Richard Jamieson s Liberte Capital Group LLC insurance fraud that ripped off investors to the tune of $105 million; former Toledoan Marty Frankel s insurance fraud that burned through $200 million; and Toledo native David Mobley s Maricopa Fund failure that duped clients out of $59 million.

In the region, there was the $49 million embezzlement by Mark Steven Miller, chief executive of the former Oakwood Deposit Bank Co. in tiny Oakwood, Ohio a fraud that caught the attention of federal bank regulators and investigators from several federal agencies still looking for more than $40 million diverted to gambling-ship operations in South Carolina and Florida.

But experts say the Toledo area probably hasn t spawned more white-collar criminals than any other large city: It just seems that way in the last decade or so.

I would say white-collar crime is as common as snowflakes in Michigan in February, said Anthony Walsh, professor of criminal justice at Boise State University in Idaho. It s one of the biggest problems we [Americans] have.

One need only look at such corporate scandals as those at Enron Corp., Tyco International, and Adelphia Communications to see the scope of the problem, he added. Those are certainly not Toledo crimes.

Moreover, most white-collar crime goes undetected, contended Mr. Walsh, a former Lucas County probation officer who holds a master s degree from the University of Toledo and a doctorate in criminology from Bowling Green State University.

They do what they do because they can, he said of con men. The potential benefits are great, and the risks are minimal a street criminal s chance of being caught is a lot greater. [They feel] there s millions to be made, why not do it?

Mr. Walsh finished his doctorate in 1983, the same year another BGSU alumnus, Edward P. Ted Wolfram, Jr., was sentenced to 25 years in federal prison for embezzling $47 million from Bell & Beckwith a fraud that bankrupted the venerable old Toledo institution and froze the accounts of 7,000 customers, at least temporarily.

Wolfram s fraud, although only one of many around the country in the late 1970s and early 1980s, stood out because of the size of the payout from the Securities Investor Protection Corp. in Washington. For many years, the $30 million cost to the agency was the largest in its history.

But Wolfram, out of prison and living in Grand Rapids, Ohio, believes his case is far from unique. He contends brokerage fraud got worse in the 1990s by a factor of five.

Patrick Foley, the former assistant U.S. attorney who prosecuted Wolfram, said cases like the Bell & Beckwith collapse are an anomaly. I know of nothing about this community to explain the sort of major frauds we ve had, he said. I wonder if we really do have more than our share. I m not sure we do. Sometimes they happen in bunches, but it s nothing to wring our hands about.

Embezzlement, forgery, falsified loans, and a whole lot of other frauds have been part of Toledo s business fabric since it was a frontier town. Over the years, there were many opportunities for watering down stock of railroad and automotive companies, selling specious interests in land-development and oil-and-gas ventures, and diverting funds from financial institutions for personal use.

White-collar crime was particularly rife in Toledo in the Great Depression, and many people went to jail or prison for tapping into programs meant to help thousands of unemployed and impoverished Toledoans.

One big fraud occurred behind the locked doors of Toledo s banks in the Depression a dark era in which half a dozen of the city s banks failed.

Some of the banks were looted by bankers and directors who paid themselves dividends even as their institutions got shakier, passed on insider information to their family, friends, and business associates, and left ordinary depositors without access to their funds by the time they folded, said Timothy Messer-Kruse, associate professor of history at the University of Toledo and chairman of the history department.

About $20 million in smart money including hasty loans and withdrawals based on inside information went to corporations and some of the city s elite families, he said, but the real amount could be many times that because some activity wasn t reported.

The $20 million would be equal to hundreds of millions today, said Mr. Messer-Kruse, the author of a book on the subject.

Seven bankers and directors were indicted, including some regarded as pillars of society, but only five cases advanced to the court stage, and all were thrown out by a banker-friendly judge.

Another home-grown scandal during the Depression made for sensational headlines. William Parmele, president of Toledo Guaranty Corp., and four of his associates were convicted of fraud and check kiting after a 43-day trial in Common Pleas Court.

The men, accused of stealing $1 million from real-estate investors, largely widows and elderly people, were sentenced to 5 to 38 years. Parmele, in bad health, was paroled in 1948 after serving nearly 10 years.

Four decades after the Depression, a number of Toledo institutions got stung by bad loans during the nationwide savings and loan crisis that cost hundreds of billion of dollars to fix. Most loans were not fraudulent.

But several bankers went to trial, including Donald Baker, chairman of the former First Federal Savings & Loan Association of Toledo, and his son William, a developer, who were accused of inflating appraisals on many millions of dollars worth of property.

The elder Baker, now dead, was fined $650,000, and given five years probation; William Baker got a one-year sentence and a fine of $400,000.

Some of the fraud trials that made national headlines resulted in big sentences: Frankel got 16 years; Mobley, the hedge-fund manager, is serving 17 years; Jamieson got 20 years; and Miller, the Oakwood embezzler, 14.

Other cases turned out differently. Toledoan William Harris served 30 months of a plea-bargained 70-month sentence for a $15 million Medicare-billing fraud, but his accountant, Josephine Browning, is still serving a 10-year sentence.

But some fraudsters did hardly any time. The United States spent millions of dollars to investigate and prosecute former Toledoan Daniel H. Overmyer for bankruptcy fraud involving a $220 million chain of ware-houses and such properties as Toledo TV Channel 24 (then known as WDHO), but in the end he was sentenced to three years, 2 of which was suspended.

And some got no sentence at all. Toledo pharmacist Shale Dolin committed suicide before the discovery of a $2 million check-kiting scheme in 2000.

Some experts believe white-collar crime happens in waves followed by correction periods. A crackdown occurred after the savings and loan crisis, and now there s a crackdown after the Enron and WorldCom excesses, noted Boise State s Professor Walsh.

I think they ll do a much better job [in the future], he said, adding that such laws as Sarbanes-Oxley help put a lid on corporate crime, especially the provision forcing chief executives and chief financial officers to attest to the accuracy of their reports.

There won t be any more Ken Lays saying, I didn t know anything about it, he said.

Contact Homer Brickey at: homerbrickey@theblade.com or 419-724-6129.



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